New Zealand Treasury proposes options to increase demand in ETS

In March 2016, the New Zealand Treasury, in a briefing note to the New Zealand Climate Change Minister, tabled several options for reforming the New Zealand Emissions Trading Scheme (NZ ETS) beyond the scope of the current review process. The Treasury raised concern with the large surplus of allowances (approximately 140 million New Zealand Units (NZUs)) held in private accounts which could be carried over into the post-2020 period and used by ETS participants to meet their surrender obligations. As these NZUs cannot be used by the Government to meet its 2030 climate change target, the Government may be required to purchase eligible international units to do so. The Treasury has estimated the allowances represent a fiscal risk of NZD 0.8-1.3 billion [EUR 0.5-0.82 billion] over the period 2021-2030.

In response, the Treasury has suggested three options for increasing demand within the NZ ETS before 2020. These include placing surrender obligations on the agricultural sector, reducing the current level of free allocation to trade-exposed sectors, and potentially restricting the timeframe in which New Zealand allowances (NZUs) have to be surrendered to before 2020. While each of these options would further reduce the stockpile of NZUs that cannot be used for New Zealand compliance post 2020, the Treasury cautions that they all have significant downsides.